How most financial advisors are paid at banks and credit unions has evolved from being based on recent production to being based on at least six months to a year of rolling averages, according to a recent study by Kehrer Saltzman & Associates.
When Kenneth Kehrer Associates did a study in 1997 of financial advisor compensation, it revealed most compensation was based on an advisor’s production in the previous month. Now, payment is based on a rolling average of the financial advisor’s production in the past six to 12 months. The findings are part of the Financial Institution Advisor Incentive Plan Survey released in September by Kehrer Saltzman, a management-consulting firm for the financial services industry.
[pullquote]The financial advice business in banks and credit unions has matured significantly over the past 15 years[/pullquote]“The financial advice business in banks and credit unions has matured significantly over the past 15 years,” says Kenneth Kehrer, whose firm conducted the original survey and who is now a principal at Kehrer Saltzman. Bank broker-dealers have found that rolling-average payments help recruit and retain high-quality advisors, as well as contribute to investment services being delivered more effectively to clients, he added.
In 1997, banks and credit unions based pay on a tiered grid calculated on the basis of an advisor’s production for the previous month, rather than the current rolling average of production for longer periods. Kehrer added:
“As a consequence, many advisor compensation plans also have moved away from the style of regional brokerage firms and now incorporate more discretionary bonuses and scorecards that include factors beyond personal production, such as goals to be met over time.”
The current survey was based on advisor compensation plans from 22 bank investment services units that represent 40% of advisors working in U.S. banks and credit unions.